Neither the Go text/template language, the Sprig extensions, nor Helm's local extensions have a way to define a template with a dynamic name. The name in a define call must be a fixed string. The text/template documentation notes (under "Nested template definitions"):
Template definitions must appear at the top level of the template.... The define action names the template being created by providing a string constant.
However, templates take a (single) parameter. Instead of trying to define a separate template for each dynamically-specified value, you could define a single template that produces this content, and then call it with the dynamic settings.
{{- define "selectorLabels" -}}{{/* <-- fixed name */-}}
{{/* .name is relative to the template parameter . */-}}
app.kubernetes.io/name: {{ .name }}
app.kubernetes.io/instance: {{ .instance }}
{{- end -}}
{{- range .Values.services }}
{{-/* . is one item from the services list */}}
{{ include "selectorLabels" . }}
{{- end -}}
You may find a simpler Helm values structure easier to work with as well. If you decompose .Values.service, it is a list, where each list is a single-item dictionary, where the key comes from a separate list. You might structure this as a single flat list of settings dictionaries, embedding the item name as a name: value within the structure (like for example the containers: list in a pod spec).
services:
- name: service1
instance: foo
- name: service2
instance: bar
- name: service3
instance: baz